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It's Thursday October 18th welcome to market foolery I'm crystal joining me. In studio Jason Moser how are you I'm doing great how about you I'm good we got her earning season here you know we do this is our favorite time of year you know what else we learned it comes four. Times a year doesn't matter what time of the evening we love a Red Sox win you know that game went a little late. Last night and it. Was a heck of a game I mean all. Of it back and forth it would not surprise me if someone in the Greater Boston area or for that matter in New England ended up in the hospital with no complications yeah we're gonna talk visa we've got another activist fight brewing let's start with your former employer and that's travelers. Travelers third quarter profit and revenue came in higher than expected you clearly know this company much better than I do but on on paper on the surface this looks like a really good quarter and. This looks like the most important numbers are moving in the. Right direction for them which leads me to ask why is this stock down today and why is it basically flat for the year well I think anybody it's anybody's guess as to what the Y stock moves on any given day and you hear that buy the rumor sell the news or whatever I mean of. The stock the stock market I think is is generally taking a beating today anyway but to your point I think that you know when you go through this release clearly I mean it was a good quarter on all fronts now perhaps the market is thinking a little bit forward and perhaps the catastrophic losses that might come from Michael. And anything else that may come down the pike but I mean when I man when I came to the full from. Travellers back in 2010 traveler shares were around $50 and today we're seeing him trading around $125 up about 100% and actually I think had hit a recent high of under. $50 so I I just like. To feel like I. Left the company in a good place but you know hey but but. In all seriousness you know I. Often wonder in all of my time here and I I have shot this across the radar before early on in my days here I don't understand why this is. A business that's never been in one of our services to be frank I mean I. Because it is a very good business we seem to like insurers here I mean obviously we latch on to Berkshire Hathaway and Markel and I think progressive is a company that gets gets bandied about here from. Time to time and in Travelers to me is a it's a just it's a good operator I can tell you from my time working there they were very focused on keeping the business not it was it was. Less about conservatism it was more about let's go ahead and pay what we owe minimize the cost on the claims side avoid subrogation at all cost whether it's on the other side of the home side or whatever. But but it was just a the general mentality there was let's pay what we owe and let's keep this business moving forward and do right by our customers and so I think the benefit there is that they maintain a pretty loyal customer base and now we're seeing them partnering up with. Amazon which I think is really fascinating because I don't know that I would look for Amazon to get in the insurance game I don't know what they could do to be better at. Insurance than anyone else other than maybe giving you insurance for a lower price and maybe covering more but I mean insurance is a pretty pretty difficult balance there I don't suspect I'd. See Amazon getting into that but partner up with something like travelers to me is is. Fascinating so you mentioned Martel and Markel is from a business standpoint and just certainly from a stock perspective but also from a business perspective it's an interesting business they get into specialty insurance and some of it gets pretty. Esoteric do you think maybe in a small way what works against travelers. Is there isn't anything particularly sexy about that like. They're a good that's how I think about travelers they're a good operator they're steady Eddie. There's nothing particularly exciting about them yeah I think the red umbrella is probably the sexiest thing about the business I mean let's be clear I'm not really saying that that ought to get your motor running either I mean I yeah I mean. I think your point is is spot-on it is a very boring business I mean they are a they're an insurer and they're not doing anything terribly special their investment portfolio is primarily fixed income but but they do a. Very good job I think of writing a strong book of doing right by their customers and that keeps those net premiums coming and net premiums which which is a. Good way to to gauge the growth of the business we're up six percent for the quarter which is good I think it's always interesting we look at consolidated combined ratios to get a better idea of how they're writing those premiums and so. They offer up a they offer up the combined ratio but then they offer up what they call the underlying combined ratio the underlying is essentially excluding catastrophic losses because those are a little bit more difficult to time and understand last year their combined ratio was a little bit over 103 percent which that's that's. Not good we want to see that number below 100% combined ratio this year was was ninety six point six percent in an underlying command ratio of 93 percent so that's all to say they're writing good business and I think that when you have a company like travelers. The continued strike good business the business is in great financial shape you you get what we've seen here just a nice steady Eddie boring business but if you've bought and held shares of. This company over the past decade you're feeling really good about that and frankly I just think there's more of that to come visa reports their latest quarter next week but in the news today because visa is hiking their quarterly dividend nearly 20 percent which sounds great. Until you look at the actual number and it's going and 21 cents a share to 25 cents this year hey look it's a it's a boost I'm sure the visa shareholders are happy about that. Does this tell you anything about what we should expect next week just because I look at visa look it's a monster business it's a 330 billion dollar company they've got the cash to hike their dividend but I just I don't know in a weird way this move raises more questions than answers for me because I look at this I. Think well wait a minute why aren't you hiking it more what else could you be doing with that money what if. Anything does this tell you no I mean. It you hit the nail on the head there. It actually makes you start asking a few more questions and digging in a little bit deeper in once you dig in a little bit deeper I. Think you come away from thinking what the hell why aren't these guys paying me a bigger dividend or something you mean I need some pretty interesting numbers behind me or me not I'm always one happy to see the dividends of the shares that I own go up okay I'm a Visa. Shareholder I never I'm gonna turn that down but but with that said. I think Visa and I'm not gonna just pick on them because MasterCard is essentially the same here I mean they're kind of in the same boat they're I don't think they're doing enough on the dividend side. And the numbers really do bear that out particularly when you consider the models generate. These net margins regularly a 40% higher they just generate buckets of cash they have strong balance sheets very reliable competitive positions there so when you look at the numbers alone from 2013 through 2017 Visa spent twenty six point seven billion dollars. On share repurchases the net share accounts come down so that's good right that helps kind. Of juice that earnings per share number because it. Brings down that that that share account and these companies are always going. To be really valued on that. EPS multiple so. 26 point seven billion in share repurchases over that same stretch they spent just under six billion dollars some dividends so considerably more of their capital is going to repurchases as opposed to dividends and I don't know that you would ever really argued one of these businesses to. Be cheap I mean. These are leaders in their space and much like companies like Home Depot or McCormick you rarely see them on sale and so then you start asking yourself really what would you rather have it you rather have them bringing that share count down or give me the cash in the pocket I mean. I think I'd rather take let me give me both right but perhaps you could juice the dividend a little bit. More because those yields are still only like half a percent something the flipside to that is as a shareholder I think we get to look forward to many dividend races to come in the future I plan on holding these shares indefinitely but but yeah as you. Said it creates a lot of questions and you come away scratching your head well and also when we've seen the innovation with companies like PayPal and square one of my questions when I was looking. Over their financials this morning was why aren't. They taking a run at. One of those coming maybe not PayPal and I'm not saying necessarily why aren't they going out sitting down with Jack Dorsey and saying ok Jack we're. 11 times the size of. Square we'd like to bring you in house how do we make this happen I'm not saying that but when I see nothing but share buybacks and dividends meager as they are I sort of. Ding companies a little bit maybe that's unfair but I just sort of look at that and go okay those are the your two best ideas when it comes to capital allocation yeah I mean I think that probably is pretty fair I. Mean I you know Matt Franklin I've talked about this on industry focus before where we look at companies like Visa and MasterCard to compare them to PayPal and Square and E the neat thing about businesses like PayPal Square and remember PayPal has venmo and has zoomed so it has a number. Of brands under that umbrella these are businesses that were very much built based on mobile technology and in technology of today whereas Visa and MasterCard have been around for a long time essentially just operate that toll booth and so I think that those two bigger businesses have suffered a little bit. From this move towards technology and and so they they've had to figure out ways to partner up with companies like PayPal and n Square and in find a new position in that value chain so to speak so that you can fund your PayPal account with your Visa card that's. Linked to your checking account or whatever it may be so Lisa and MasterCard still get to play in that sandbox but they do maintain perhaps a little bit of. A diminished role but from from from before a PayPal is such a big company now I mean it's around a hundred billion dollar market cap I think I think technically still bigger than American Express even today square I think is headed down that same path so for for visa and/or MasterCard to talk about in. Acquisition it's gonna cost an arm and a leg plus I don't think those businesses are interested and you probably have some antitrust questions as well but I think they're gonna continue to figure out ways to partner up with businesses like those to maintain a position in that value chain so they get something because something is ultimately. Better than nothing we've got a fight going on at Campbell's Soup and frankly Campbell Soup has never been more interesting Dan Loeb from a third point activist investor that we've talked about from. Time to time probably best known in the recent past for the stake in Darden Restaurants and coming out with the the note that Olive Garden needs to stop giving away so many bread. Stones responsible for salting the pasta water I think that be clear that's a good observation I mean if you're not salting that water. We had problems here's the thing Loeb people myself included have pokes fun at Dan Loeb in the past. For various reasons. But you go back. And look at that Olive Garden literature he was right about a lot of things yes so now. It's Campbell's soup but Loeb and third point have nearly a 7 percent stake in Campbell's soup the annual meeting for the company is November 29th Lowe is looking for no less than trying to replace all 12 members of the Board of Directors all at once lean one fell swoop and no shrinking violet he put together he and his. Team put together a video just mocking Campbell's soup I haven't watched it I haven't clicked on it yes but it's as I said Campbell. Soup is never been more interesting and it's you look at how challenged packaged food is this is one of those things where I'm not rushing out to buy. Campbell's soup but I could see a bunch of people looking at loaves track record which you sure it has some negatives. Every investor has negatives in their track record but he's got some positives and I could see people. Looking at this saying maybe I'll take a whack at this maybe he can eking maybe he doesn't replace all 12 but he agitated gets a few spots on the board and they can boost this thing because it it's. A really troubled business right it is it sounds like he's gonna have probably a lot of trouble doing that because from what I've seen is it's it sounds that. Most of the family-owned stake of. The business is still against what he's trying to do but get me to your point about that video I didn't watch the video I saw the part one wine that he threw in there which is just it made me laugh because he's just really playing this up it's kind of Hollywood he's like it's time to empty the can refresh. The recipe and restore shareholder value and it's like that's his that's his threat level midnight moment right it's clean-up on aisle five I feel like he's just really resorting to not hyperbole but just taking it maybe a little over the top. Because here's the thing I don't know that what's assumed that he gets control of this business what do you do because I don't know that it's so plainly obvious right I mean they've been more or less passed in a lot of ways by this newfangled sort of packaged food environment that's out there a lot of brands out there that. Resonate with younger consumers now in Campbell isn't necessarily one of them I think they did make that big lance Snyder's Lance Steele I think last year was and I think that actually resulted to carry about four and a half billion dollars in goodwill. On their balance sheet a lot of it came from that but that represents like a third of the company's total assets so to me I mean they're clearly challenged on the revenue. Side the answer is not just as simple as well we're gonna do this this and this I mean it and PETA can refresh the recipe and restore shareholder what does that mean it just that doesn't. Mean anything right that's not a plan that's just a bromide so. To speak but so I don't know I mean I feel like he's getting in there and trying to shake things up I understand that I appreciate it oftentimes we see folks like this who perhaps they're a little overconfident maybe think they know a little bit more than they do I'm not. A shareholder in Campbell I'm glad I'm not a shareholder in Campbell and this does not make me want to be a shareholder. In Campbell well and. When you look back at what he did with Darden Restaurants the parent company of Olive Garden you could look at that and say all right operationally there are some changes that can be made in the case of turning around Campbell's soup I don't see how that happens without for lack of a better term financial engineering I. Know I don't see how you turn around Campbell Soup unless you make some significant changes to the cost structure of the business it could be something like a seer story here right I mean you just maybe the answer is maybe the. Answer doesn't really exist I. Mean perhaps it is just whittling down the business and focusing on what really makes money I do appreciate his perspective that former leadership was overpaid and didn't deliver I think that's spot-on but but I think that part of the problem is that just the solution isn't so easy and and we've talked and talked about it all all. The time here on the show I mean it that is a tough line of work because ultimately you really do have to focus on offering very low. Cost goods right I mean you don't really maintain a lot of pricing power in this realm and in the sliders lanced acquisition. I mean that is right up my alley I mean you're talking about chips and pretzels and peanuts and all. That stuff and that's man I love it but that also is something that doesn't necessarily hold the same way to stay so then you look at something like a PepsiCo which has really been able to benefit not only from the salty snacks side but the beverage side as well and I think that ultimately is what. This all boils down to is consolidation in the space and one in one shape or form and I and I think that Campbell probably is headed down that road and you know at some point or another here. But I don't I don't know that Loeb is gonna have his way ultimately here because it sounds like the votes may be stacked against them and to go back to something you. Said before and something I said before we before when you're talking about activist investors sometimes feel like if they've had some success they feel like they know a little bit more than they actually do tie that to Campbell Soup never been more interesting that. It is right now and yet I just want to caution the dozens of listeners you and I were talking about this earlier this morning one of. The ripple effects of the bull market that we've had is that people like Dan. Loeb people like Bill Ackman who we talked about recently with his investment in Starbucks activist investors and hedge fund managers who have done well in this bull market have more money to throw around and so it's one more reason for investors to do a little bit more homework. I saw a note this. Morning about a private company hiring Goldman Sachs and JP Morgan Chase to handle their IPO and one of the lines in the story was one of the investors in this company it's company. Called beyond meat and Wow I read about and one of the investors is Bill Gates and you could see an investor out there saying oh well Gates is investing maybe I should. Take a look at it well take a close look at it because Bill Gates has all the money in the world yep and this is a rounding error for him in terms of his investments and the same thing with Loeb and Bill Ackman and other activist investors as they do well they have more money to. Throw around more opportunities to try and. Turn companies around and not all of them are gonna. Work no they they don't and I mean they have the ability to take on more risk and I can. Guarantee that their their money isn't as important to them as yours is to you because they have a lot more of it okay and so that's that's the. First thing I always think about when I look at what these people are doing they're similar. People their situational money right their situational money like whatever Bill Gates invested in beyond meat is pocket change to him exactly in in most individual. Investors like us we we don't have that sort of pocket change and so for me I find it always interesting to see where people have their have their heads that so to speak but but yeah. I think that's it's a good reminder to not just jump in blindly and follow what other people are doing because it's not to save Loeb and Agra and all these guys aren't smart smart folks they. Are they're very smart guys I mean there's no argument there. It's this is not about intelligence this is about like you said having more money to invest in more things and so when you have that situation you can take some more risks and maybe you throw. Your money at ten different investments in the hope is that one of them ends off paying all ends up paying off and so I think that's just an always a good reminder for individual investors like us. To just don't look to these activists as a point of optimism it's interesting learn from it but but be very careful before you decide to go following their footsteps fun to talk about though yes always Oh before we wrap up just want to say happy birthday to. My big sister she listens to market foolery in the morning so Friday Friday is her birthday birthday and so she'll be listening so I love you sis thanks JMO thanks for being here man thank you as. Always people on the program may have interests in the stocks they. Talk about in The Motley Fool. May have formal recommendations. For or against so don't buy or sell stocks based solely on what you hear that's gonna do it for this edition of market foolery the show he's mixed by Dan Boyd I'm Chris Hill thanks for listening we'll see. You on. Monday you.


The Travelers Companies Company News

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